‘Make in India’ in defence production does not imply stopping arms imports altogether. Rather, it means importing only those components that cannot be produced locally, while strategically utilising offsets and building domestic capabilities that will enable India to export complete systems and sub-systems as an active participant of the global supply chain.
By Sameer Patil*
On 1 July 2016, the Indian Air Force (IAF) inducted the first squadron of the indigenously-made fighter jet, the Tejas Light Combat Aircraft (LCA), into its fleet. The induction of Tejas followed the inaugural flight a few days earlier, on June 17, of the basic trainer aircraft Hindustan Turbo Trainer-40 (HTT-40), also indigenously produced.
For India’s aerospace sector, these are important milestones, especially as the ‘Make in India’ initiative has set a target of 70 per cent indigenisation in defence production by the end of this decade. However, while aiming for such an increase in the process of indigenisation of defence production, it must also be acknowledged that India will need to continue to import arms to meet the current operational requirements of its military. This is because the country does not possess defence technologies in all areas. This is particularly true for the aerospace sector where the country has encountered difficulties in avionic, propulsion and jet engine technologies.
There is no shame in importing defence equipment which we have no capability to produce domestically. The key is to utilise the defence offsets strategically, linking them to the imported arms to achieve greater indigenisation. Offsets are the arrangements done by the buyer countries to derive economic benefits from arms deals which involve substantial foreign currency expenditure. These arrangements range from the transfer of technology and foreign investments to joint ventures. Given that aerospace armaments will dominate India’s defence imports in the foreseeable future – the Rafale fighter jets from France and the Apache and Chinook helicopters from the U.S. are examples – offsets present a critical opportunity for the aerospace sector. The government has recently increased the offset threshold for defence deals from the earlier Rs 300 crore to Rs 2000 crore. The government will however need to ensure that unlike in the past, the foreign vendors actually transfer the technology to India.
Even as India continues with armament imports, actively encouraging domestic projects with a greater involvement of the private sector can yield rich dividends. By prioritising domestic projects such as the Tejas and HTT-40, the government has already succeeded in its promotion of Small and Medium Enterprises (SMEs) which have played a significant role in these projects. Such projects will eventually enable the SMEs to embark on capacity-building and achieve economies of scale.
Calibrated steps such as these impart a growing confidence in Indian companies – both public and private – to build complete weapon systems such as the Tejas fighter jet or the BrahMos cruise missile system, or even offer services such as the record-setting achievement by the Indian Space Research Organisation, which successfully launched no less than 20 satellites in a single flight on 22 June this year.
India has proved that it has the potential to produce not just complete systems but also components and sub-systems for larger platforms – military and civilian – and is poised to integrate into the global supply chain. Already, major Indian business houses such as the Tata Group, Mahindra Defence and the Kalyani Group, through their partnerships with foreign defence companies, have entered the global supply chain in the aerospace sector.
This is the underlying intent of the ‘Make in India’ initiative: to open up greater opportunities for Indian businesses, not only in the domestic market but also in the global supply chain.
Countries such as South Korea, Israel and Brazil have implemented various models of offsets to develop niche capabilities, build defence industrial bases and emerge as defence exporters. There is no reason why India cannot smartly utilise offsets to enhance its technological base. This is a much more respectable route to indigenisation than that of China which engaged in ‘reverse engineering’ of western and Russian equipment to master the technologies. This is one of the reasons why western countries are still wary of selling arms to China.
By contrast, India’s defence technology co-development and co-production projects span Russia, the United States and Israel. These help Indian industry to imbibe both basic technologies as well as high-tech know-how for such complex defence products as missile systems and the fifth generation fighter aircraft. Such projects provide valuable opportunities for the country to strengthen its R&D capabilities and establish a robust defence industrial base. India’s aerospace sector has shown the way.
About the author:
Sameer Patilis Fellow, National Security, Ethnic Conflict and Terrorism, at Gateway House.
This feature was written for Gateway House: Indian Council on Global Relations.
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